Property Taxes Across G20 Countries: Can India get it right?

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This paper explores issues relating to India’s tax base, its tax structure and the subsequent equity effects, by comparing it with other G20 countries. It focuses specifically on property taxes and discusses these issues from a political economy viewpoint, providing a wealth of tabular and visual data. Statistical appendices offer data for readers to work with.
  i   Oxfam India working papers series January 2013OIWPS - XV Prashant Prakash Centre for Budget and Governance Accountability PROPERTY TAXES ACROSS G20 COUNTRIES: Can India Get it Right?  This paper deals with some of the issues relating to India’s tax base, tax structure and their equity effects, by comparing it with other G20 countries. Focusing specifically on Property taxes, the paper attempts to discuss these issues from a political economy lens as well. This paper makes a comparison of the tax base, in terms of the total tax to GDP ratio, across G20 countries, and analyses the progressivity of the tax structure across G20 countries by comparing the shares of Direct Taxes in total taxes. It shows that India, recording much lower levels of tax-GDP ratios and smaller shares of Direct Taxes in total tax revenue as compared to other G20 countries (including other BRICS countries), leaves a lot to be desired. The paper argues that in order to expand the tax base in India in a progressive manner, new avenues within Direct Taxes should be explored. In this context, a comparison of Property Taxes across G20 countries, focusing specifically on Wealth, Inheritance and Municipal Property Taxes, shows that these taxes have remained grossly under-utilized in India, both as a source of revenue and an instrument for progressivity in the tax system. The paper opines that the conventional arguments for suspension of Inheritance Tax (since 1985) and dilution of Wealth Tax (since 1993) in India do not hold at the present juncture; moreover, the purpose of Wealth and Inheritance Taxes was never only revenue mobilization, but also to limit the concentration of wealth in the hands of a few as is enshrined in the Constitution of India. The Author: Prashant Prakash   Prashant Prakash works with Centre for Budget and Governance Accountability (CBGA), where he is focusing on a number of issues pertaining to taxation and mobilization of public resources. He has studied Economics from Jawaharlal Nehru University, New Delhi. Earlier, Prashant taught in a couple of colleges in Delhi University and worked with some of the think tanks based in Delhi and Hyderabad. Acknowledgments The author would like to thank Prof. Praveen Jha, Dr. Vinod Vyasulu and Subrat Das for their comments and suggestions regarding the paper. Abstract Disclaimer: Oxfam India Working Paper Series disseminates the finding of the work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusion expressed in this paper are entirely those of the authors. They do not necessarily represent the views of Oxfam India. Published by: Oxfam India and Centre for Budget and Governance Accountability  Contents Introduction 21. Tax-GDP Ratios in G20 Countries 42. Progressivity of the Tax System in G20 Countries 5 2.1. Revenue from Direct Taxes across G20 Countries 5 2.2. Trends in Direct Taxes across BRICS and USA 63. Property Taxes in G20 Countries 8 3.1. Property Tax Base in G20 Countries 8 3.2. Property Tax Structure in G20 Countries 104. Wealth Tax, Inheritance Tax and Municipal Property Tax in India 125. Concluding Remarks 18References 20Appendix 23  2 Introduction The fiscal policy permeates most debates on the Indian economy in an explicit or implicit manner. Over the years debates on the Indian tax policy have focused on three major issues—adequacy of the tax base and efforts; efficiency of the tax structure; and incentive and equity effects of the tax policy (Roy 1998). The present paper addresses issues relating to tax base, tax structure and equity effects, but from an international comparison perspective. Focusing on Property Taxes, the paper attempts to view these issues from a political economy lens as well. Following the methodology of the International Monetary Fund’s (IMF) Government Finance Statistics (GFS) 2001 Manual, Property Taxes subsume: i) recurrent taxes on immovable property (Municipal Property Tax, Land Revenue, Tax on non-urban immovable property and Property Tax by rural local bodies i.e. Panchayats in India); ii) recurrent taxes on net wealth (Wealth Tax in India); iii) Estate, Inheritance and Gift Taxes (Estate Duty 1  and Gift Tax in India); iv) Taxes on financial and capital transactions (Securities Transaction Tax, and Stamp & Registration fees in India); v) other non-recurrent taxes on property (one time tax on revaluation of capital and property 2 ); and vi) other recurrent taxes on property 3 . While focusing on all the above mentioned categories for the international comparison, at the national level the paper specifically focuses on Wealth, Inheritance and Municipal Property Taxes, which are more importance for the revenue, equity and political economic perspective as compared to other taxes. Land Revenue, whose importance from an equity and political economy perspective has been debated a lot 4 , is left out of the analysis because of its declining importance as a source of revenue 5 . Stamp Duty on property transactions is an important source of revenue, but the same being a transaction tax, and also an Indirect Tax, does not satisfy many canons of taxation and hence has been given limited emphasis in the paper.This paper attempts to carry out an international comparison of Property Taxes across G20 6,7,8  countries (including BRICS countries) with two key objectives. Firstly, it attempts to analyse where India stands today internationally in its resource mobilisation strategy; secondly, it uses this analysis for suggesting possible 1  This paper uses the terms Inheritance Tax, Estate Tax and Estate Duty interchangeably. 2  For example, tax on increase in land value due to any government project. 3 For example tax on cattle, jewellery and other external signs of wealth. 4  For a large body of literature on agricultural income and Wealth Tax, see Roy (1998). 5 Desai, Nitin 2012. 6  No data for Saudi Arabia was available; 7  Average values of OECD countries have been given in chart 1 and chart 2 as a substitute for values of the European Union region. 8  For comparability of data between OECD Revenue Statistics, IMF Government Finance Statistics and United Nations System of Na-tional Account see Annex A, Revenue Statistics 2011, OECD.
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